Attorneys’ Fees Incurred in Prelitigation ADR: Grossman v. Park Fort Washington Association

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Are attorney’s fees expended for Alternative Dispute Resolution (“ADR”) before litigation recoverable by the prevailing party in subsequent litigation under the Davis-Stirling Act?

In Grossman v. Park Fort Washington Association (2012) 212 Cal.App.4th 1128, the California Court of Appeal, Fifth District, determined that attorneys’ fees and costs incurred during prelitigation ADR are recoverable if two conditions are met: (1) an action is brought after the prelitigation ADR proceeding to enforce the governing documents; and, (2) the court finds one of the parties to be the prevailing party.

Grossman involved a dispute between the Association and two homeowners who built a cabana and fireplace in their backyard without the Association’s approval. The homeowners requested a variance for the unapproved structures which the Association denied based on its interpretation that the governing documents prohibited the cabana and fireplace. The Association informed the owners that the cabana and fireplace had to be removed and imposed a fine of $10 per day until the structures were removed.

The Association and the homeowners thereafter agreed to mediate the dispute as required under former Civil Code §1369.520 (current Civil Code §5930). The case did not settle at mediation and the homeowners filed a lawsuit alleging that the Association improperly interpreted the governing documents in refusing to approve the cabana or grant a variance and in imposing fines against them.

The trial court disagreed with the Association’s interpretation of the governing documents and held in favor of the homeowners finding that the Association’s governing documents allowed the cabana and the fireplace as long as the fireplace was more than 10 feet from the property line. Judgment was entered in favor of the homeowners and the fines imposed against the homeowners were rescinded.

The homeowners filed a motion for an award of their attorneys’ fees and costs as the prevailing party in the action. In their application for fees and costs, in addition to seeking an award of their fees and costs incurred during the lawsuit, the homeowners also asked for an award of their fees and costs incurred in connection with the prelitigation mediation. The Association opposed the motion arguing that the attorneys’ fees and costs incurred in conjunction with the prelitigation mediation were not authorized under former Civil Code §1354(c) (current Civil Code §5975(c)).

The trial court again disagreed with the Association and awarded the homeowners $112,665 in fees and costs which included fees for the prelitigation mediation. The Association appealed and the court of appeal affirmed the trial court’s award of attorneys’ fees and costs, including those that were incurred in the prelitigation mediation.

The appellate court carefully analyzed former Civil Code §1354(c) and held fees incurred during prelitigation ADR may be included in an award of reasonable attorneys’ fees and costs if two conditions are met: (1) an action is brought after the prelitigation ADR to enforce the governing documents; and, (2) the court finds one of the parties to be the prevailing party.

The court of appeal reasoned that since former Civil Code §1369.580 (current Civil Code §5930) essentially makes ADR mandatory, for a court to deny reasonable attorneys’ fees incurred in pursuing prelitigation ADR would be contrary to the strong public policy of promoting the resolution of disputes through mediation and arbitration. The court of appeal determined that public policy is served in interpreting former Civil Code §1354(c) (current Civil Code §5975(c)) in a manner that awards reasonable attorneys’ fees and costs incurred in prelitigation ADR proceedings.

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